Governor Granholm's Michigan Wage Hike Threatens Already Fragile Economy

High Unemployment and Poor Job Creation Will Only Worsen Under Granholm's Proposal, Says Employment Policies Institute

LANSING, Mich., Feb. 8 /PRNewswire/ -- Governor Granholm's anticipated support of an increase in the minimum wage in tonight's State of the State address ignores the economic reality facing the state. With an unemployment rate of 7.3% -- tied for the highest in the nation -- and a loss of 47,000 jobs since last December, Michigan's low-skilled employees cannot withstand the Governor's proposed increase, said the Employment Policies Institute today.

Decades of research dating back to the creation of the minimum wage clearly show that increases in the minimum wage decrease employment, particularly for the least skilled employees in the economy. Cornell University economists found that adult high school dropouts and African- American young adults suffer four times more employment loss from a minimum wage hike than their more educated and non-black counterparts, respectively. Research from Duke University found that these low-skilled employees lose their jobs to more skilled applicants -- often teenagers from wealthy families who are attracted to the new higher wage.

These costs will come with very little benefit to Michigan's low-income families. A recent analysis of a minimum wage increase to $7.00 an hour, utilizing United States census data, found that the vast majority of beneficiaries (86%) would be either teenagers living with their working parents, adults living alone, or a married couple -- often with a spouse earning a higher income. As a result, the average family income of a beneficiary in Michigan from the increase would be over $51,000 a year.

Only 14% of beneficiaries would be single parents with children. All of these individuals qualify for up to $4,000 in tax-free cash assistance from the federal earned income tax credit (EITC) -- money they would lose when the minimum wage forces them out of the labor force.

"Governor Granholm's support of an increase in the minimum wage plainly ignores the economic reality facing Michigan's low-skilled labor force," said Craig Garthwaite, EPI's director of research. "If Governor Granholm is seriously interested in helping low-income Michiganders, and not simply advancing a partisan agenda, she should look to solutions that would actually benefit these individuals such as a state earned income tax credit program."

Research from Michigan State University and the Federal Reserve found that such a program would be far more efficient at actually helping those in poverty than an increase in the minimum wage.

The Employment Policies Institute is a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.